Posts Tagged capitalism
Good news about private enterprise. Despite fervent attempts to have it destroyed it will survive. Not only that but it will win in the long run. Some may not see it now due to, what it may seem to be, incompetence and lack of efficiency at the public sector level. Some, whose views are still blurred, continue to be convinced the private enterprise brought the economy down to its knees. Nevertheless, private enterprise will triumph. It always did even under repressive systems whether known as the black market or the underground market.
I often shop at Walmart. I have always been satisfied with my local Walmart’s customer service. It’s not just the prices or convenience that draw me back there often but their recent addition of chic clothing lines, variety of cosmetics, and (so far) qualified electronics advise. I even bought a pair of cross-trainers for $19.99 which I found myself wearing just about everywhere not just at the gym. Yes, they are made in China, but what isn’t made in China nowadays? We ought to give big thanks to the national government and its policies of destroying manufacturing in our country but that’s another story.
Walmart has certainly come a long way. Once in a while I even use their money services such as a couple of weeks ago when I purchased a money order. As you may be aware many public entities don’t accept personal checks for payment of services so this was my case when dealing with a government office. My situation was simple. I made the money order payable to the wrong government office and it was sent back to me along with a rejection of the service I was in need of. Never mind I got the instructions directly from their website.
So I needed my problem solved. I needed to cancel the money order with the wrong name, get a credit for the dollar amount, and have a new money order issued. Never had to deal with anything like this before so I thought it would be a tough one to solve. I went back to Walmart for help. Sure, I had to wait in line about 15 minutes and I know that for someone who is in a hurry that may not be that convenient. However 15 minutes was worth the wait to accomplish my mission.
When I wait I usually have the habit to observe, whether it’s people or events. Donuts, soda pop, and processed foods in a shopping basket are not the emblem of healthy aging, for example. I see it as a direct ticket to the hospital. Store cleanliness invites me back to the store. Watching elderly couples gives me hope that wisdom has meaningful purpose in our world. I then proceeded to watch the employee who was going to help me. Blond, blue eyed, and young; about 27 years of age in my estimation. He helped four people who were ahead of me in line. He helped his manager who needed his help. He multi tasked. He kept his calm no matter how overwhelming his responsibilities were becoming. By the time my turn came I expected to see a sign of a break down. His face was like I was his first customer for the day, no sign of distress. I explained my concern with the money order. I did not have a receipt with me. If I did I would have made his life easier because he would have been able to track down the transaction faster. My mistake. But he did find a way to help me. It took longer time and most importantly knowledge how to do it. He went the extra mile, no commission, no bonus as incentive, he just did the right thing. He had all this and more yet how many people take the time today to recognize such values from a Walmart employee?
In my case the Walmart employee was better qualified to solve problems than the government office which had wrong information on their website. The government office employs people, just as Walmart does. What is then the difference between the two of them? Hiring qualification guidelines. To a private enterprise, an employer’s requirement is that an employee knows how to solve problems. For a private enterprise, the customer is always right.
Not so with a government entity. Their guidelines come from a higher level. Their positions are secure as long as there are tax payer money to “fund” them. Their positions are not based on productivity or efficiency. Bureaucrats punch in and punch out. Just as in the former centralized systems like the communist countries of the Eastern Block or China, we have seen that such a system is not sustainable and thus its lifespan is limited.
There is a battle between the public system and the private enterprise. The good news is that it is the people of private enterprise who will assure the victory. Whether it’s Walmart or any other business whose people are competent to solve your problem be sure to let him know you appreciate it. I did and he blushed with humility.
I often feel lucky to have grown up in a country where the government was powerful enough to control its people. I know this may sound crazy but that experience enabled me with a keen intuition and a desire to be less governed. After all, this desire to be less governed prompted me to come to America. Following is simply my perspective on the government’s power to interfere with the housing market that has been the epicenter of the current economic crisis; a crises that is impacting not only the United States but the entire world.
We’ve been programmed to think that these events are the result of the “instability of the free market”. Great excuse that supposedly justifies more government regulation of the mortgage business and the housing industry.
Inviting government to step in and regulate the life out of business may be the status quo today but a handful of people – including myself – believe more rules and regulations to be even more detrimental to our frail economy in addition to the threat to our individual liberties. As a matter of fact it is the government interference that largely contributed to set this disaster in motion.
Few of you may know that during the 1990s the Federal government began a huge regulatory push to create “affordable housing”, under the presumption that the cost of acquiring a home was out of reach for a growing number of American families. Democratic and Republican members of Congress and both, President Clinton and President Bush administrations put pressure on lending institutions to lower their credit rating standards. So, we ended up with banks offering loans with low or no down payment, to people with marginal credit and unstable income and employment, many of these loans being adjustable rate mortgages with low introductory rates that would increase after 2, 3 or 5 years.
Initially banks were not happy to take on such a risk but there are few primary reasons that led to ultimately “convince” them to do it. One of them was the intimidation from the bank and mortgage regulators. They threatened with anti-discrimination law suits if banks did not increase their lending to targeted socio-economic groups that were less credit worthy. The other way to convince them was by allowing them to sell their loans to the two semi-governmental agencies, Fannie Mae and Freddie Mac. What that did was to transfer the risk (of a subprime marginal borrower’s loan) from the banks to Fannie and Freddie agencies. We all know how in 2008 these agencies have been declared insolvent and were put under government conservatorship. In short, the risk of such loans had been transferred from the banks to the American tax payer.
Another major factor that contributed to the housing collapse was the monetary policy of the Federal Reserve. In 2003 and 2004, the Central Bank kept interest rates artificially at historically low levels. As explained by the Austrian School of Economics – Murray Rothbard, in particular in “Economic Depression, their Cause & Cure” – when interest rates are suppressed via Central Bank and are NOT a result of a free market, it leads to malinvestments. I will discuss more about malinvestments occurring during Economic Bubbles in a separate article. For now, just keep this thought in mind…”Malinvestments”.
In conclusion, could the economic Bubble/Bust have been avoided? Absolutely, if only the government did not interfere with the markets! No imposed lower credit rating standards, no bailouts of Fannie & Freddie, no bailouts of companies that offered Credit Derivatives, no rate manipulation triggered by the Federal Reserve Bank, and our lives and children’s future would most likely not be as threatened today.
“Government means always coercion and compulsion and is by necessity the opposite of liberty.” Ludwig von Mises
I can’t tell you how often I hear or read that it’s Capitalism that destroyed our economy, business professionals included. So, I decided to write about this because most folks think of Capitalism in terms of Free Market Capitalism and not in any other way.
Well, according to Wikipedia “Free market capitalism consists of a free-price system where supply and demand are allowed to reach their point of equilibrium without intervention by the government. Productive enterprises are privately-owned, and the role of the state is limited to enforcing property rights.”
What’s important to emphasize on is the government role of non interfering in the market. Next, I will share with you a little history on money that will ultimately conclude that Free Market Capitalism has been dead for a long time. It started in 1913 when the U.S. Congress passed the Federal Reserve Act and the United States Revenue Act (creating the IRS).
The Federal Reserve Act gave a private cartel of international bankers control over our monetary policy. Factor in the Legal Tender Act which prohibits any form of lawful money except the Federal Reserve Note, the US Dollar. It is this Legal Tender Law that gives the Federal Reserve bankers their money monopoly. Well, at least our new federal money still had some value. It was backed by gold, but not for long.
The Federal Reserve can control interest rates by expanding or contracting the quantity of money. It can control the financial markets with its “Open Market Operations.” It can create new money, it can negotiate with foreign banks on monetary policies without congressional approval or knowledge. No one – not even the president – has auditing authority over the Federal Reserve, a private corporation not a government agency.
In a free economy the true market value of interests is determined by the availability of savings for investing and future consumption. When an entity such as the Federal Reserve has the power and ability to manipulate interest rates by expanding or contracting the quantity of money, the market cannot correct itself. These false man-induced signals along with government regulations are what create booms and busts in our economy, not free market actions. The Federal Reserve and the government manipulate the appearance of economic prosperity for personal and political gain and then blame free market capitalism when the inevitable adjustments occur (busts).
By creating the Internal Revenue Service (collection arm of the Federal Reserve), we as individuals don’t have the right to our individual production, property and privacy. Congress can change the tax rates and rules at any time, favoring some at the expense of others. Then, in 1931 the Federal Reserve declared war on our dollar by making the first move to remove the gold as its backing. In 1971 Nixon finished the process and from a gold backed dollar we ended up with a fiat dollar backed by the “good faith” of the Federal Reserve and the government.
What we have today is not free market capitalism, it is corporatism. Corporatism is a form of fascism, where big business and government work as partners at the expense of the productive class. We have the military/pharmaceutical/energy/media/industrial complex and the elitist central planners of big government ruling our country. We see a revolving door of big business CEO’s and bankers taking key government positions of power. They then move back into their private positions after accomplishing their goals of amassing great wealth for their friends and themselves.
So, next time you hear anyone complaining about what Capitalism had done to their lives feel free to tell them “It’s not Capitalism, smarty, it’s Corporatism”!